A National Australia Bank (NAB) official said on Tuesday that in the next few years, Australian banks would rely less on wholesale funding and instead focus on deposits as the main source of their lending operations.

Besides veering away from the higher cost of lending often sourced overseas which has been criticised by Australian borrowers, NAB Finance Director Mark Joiner said local banks are also improving their deposit books to meet new global rules that would strengthen balance sheets.

He forecasts a five-year time frame as the period for competition for deposits in Australia as lenders prepare for net stable funding ratio changes.

Australia's big four had cited the higher cost of funding sourced abroad as the reason why it did not follow some of the Reserve Bank of Australia's (RBA) overnight cash rate decisions the past few months by hiking rates when the central bank kept the current key lending rate or pocketing some of the cuts when the RBA reduces the benchmark rate.

NAB reported to Tuesday a net profit of $1.2 billion for the June quarter. This figure boosts the bank's cash profit for the first nine months of its current financial year to $4.23 billion which placed the lender on target to improve full-year cash profit of $5.5 billion last year.

NAB Chief Executive Cameron Clyne pointed out that the bank achieved the results amid ongoing challenges to the global economy over uncertainty in the eurozone and U.S., volatility in global financial markets and slowing growth in emerging economies.

Cash profit, however, was flat at $1.4 billion compared to 12 months ago below analysts' expectations of $1.5 billion.

"Although subdued business and consumer confidence continue to affect the Australian economy, we remain positive about the outlook, Mr Clyne said in a statement.

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